Mystery of the 5¢ Coke

When was a Coke ever 5¢?
This question conjures images of iconic advertising that we only encounter in “old-time” theme restaurants and advertising magazines.  The actual ability to purchase a Coke for 5¢ was last seen in 1959.

When Coca-Cola began to sell Coke to the market in 1887 (it was given away for free in 1886), it sold for 5¢ a bottle.  Today, a bottle is typically bought for $1.00 – an almost 2000% price increase. 

Taken out of context, that may be misread as simply a “greedy” corporation that wants more money.  However, in reality, it just shows the devastating affects of inflation on the prices we pay for everyday goods.

According to the govt's consumer price index, something purchased for 5¢ in 1913 (the year that the Federal Reserve was created) would cost approximately $1.16 in 2012 – an increase of 2225%!  This knowledge sheds light on why the price of “refreshment” has increased, but we still haven’t taken the increase to its root cause.

Inflation
We have already seen that the price of a Coke has increased over time, but why?  If a 42” LED TV was $4000 a few years ago, and they are on sale this year for less than $1000, then why is the Coke different?

The difference is this: while actual prices (in constant currency) do go down over time, inflation has simultaneously decreased the value of currency.  Thus, as things become easier to make with efficiencies in manufacturing techniques and economies of scale in production, their currency prices increase over time.

Items that have managed to decrease in price in the relative short term (TVs, electronics, etc) are mostly due to manufacturing efficiencies.  However, in the past century we have seen a dramatic increase in the cost of consumer goods (Cokes, bread, pencils, clothes, etc).

These price increases are due to inflation.  After all, in the case of a Coke, it is “just” water, syrup, and a bottle.  With all the advances in technology and distribution, doesn’t it follow that it would be cheaper and easier to bottle sugar water in 2012 than it was in 1887?  Of course, we can bottle at 100s of units per minute!

So, if the price increase from 5¢ to $1.00 was not due to manufacturing, then is it simply profit?  No. If we thought the price of a Coke was too high, we just wouldn’t buy it.  Our actions are the same as our counterparts from 1887.  They knew a deal when they saw one, and we do too.

Therefore, the only other explanation for the price “increase” is inflation.

Moneyfactory.gov
Yes, you read that correctly.  We have a “money factory” in the US.  It sure would be nice to have one of those as a regular citizen, but, unfortunately, we would be arrested for counterfeiting.  The ability to make money is restricted to the US government.

What is the problem with that?  Quite simply, this “money factory” is the root cause of inflation – and the reason why our Cokes are $1.00 instead of 5¢.

Consider the scenario of $1000 in total circulation, and a cup of coffee selling for $1.  If, by magic, the total amount of money in circulation doubled, to $2000, then with all other things equal, the price of the same cup of coffee would be $2.  This is inflation – an increase in the supply of money.

The coffee has the same value - it keeps you awake, hydrates you, is warm, etc - but, because there are more dollars in circulation, they are each reduced in relative value, and thus, the coffee’s price increases.

So who increases the amount of money in circulation?  The US Government’s “money factory”.  With each printing of a new dollar bill (or creation of new money electronically as is the case these days), the value of the dollar in your pocket and bank account decreases.

The Banks are to blame…right?
Well, what is the problem with printing money then anyway?  If all prices increase by the same amount, and we all have extra money, then there is nothing wrong, right?

In the first scenario of inflation and coffee above, the entire money supply increased at once.  Perhaps someone added an extra “0” to the end of our bank accounts evenly.  Perhaps we all got a check in the mail for $1000.  In this example, it would be a futile action – we would just deal with much larger numbers in our daily transactions.

In reality, however, the Federal Reserve prints money and then “loans” it to banks – they don’t send a check to everyone’s house.  Think of this as if you had a printing press at your house.

In this second scenario, you would print money, as much as you wanted, and then use it to buy the things you desired.  Your neighbors, however, would not receive any additional money, and they would continue consuming as normal. 

Things are going well for you in the second scenario.  In addition to buying what you wanted, you would give money to a small circle of friends and family, who would then buy what they wanted to (it is good to know people).

In this way, in ever-increasing circles, new money is introduced into circulation.  As recipients of this money purchase items they normally wouldn’t, the prices of those items are bid up in normal supply and demand fashion.  Eventually, prices of regular items are increased (the coffee and Coke from above) as the money ripples through the economy.

The problem in this second scenario is one that is not present in the first.  In the first scenario, it was a “one-time” increase, and was the same for everyone – resulting in a math exercise. 

In the second scenario, however, the money is not introduced all at once; rather, the people that get the money first, before inflation can set in, do not pay the higher prices.  The people that get the money last, or perhaps not at all, only see the prices rising.  There are “winners” and “losers” in this system.

Naturally, the “losers” look on the “winners” with contempt because they know they have been cheated.  In our current system, people tend to look at the banks.

In the “occupy” movements, there was much strife against the “big banks” and how they were bad.  However, they were just the “friends and family” in the first scenario.  The real culprit, and unseen to the majority of people, is the government’s printing press.

What to do?
To summarize: an increase in money supply causes inflation of prices.  So, just how much are we printing? It is difficult to visualize numbers as large as “$85 billion”, so here is a link that puts things into perspective.

The only way to stop the theft of your money through inflation is to first, become knowledgeable about the causes and affects of inflation.  A great resource is Murray Rothbard’s “What has Government Done to Our Money?”.

Once the knowledge is there, the second step is to inform others.  For my entire life, I was told that “our money is based on trust”, and I never questioned it.  Now that I see the fallacy in that statement, and that “trust” means, “trust us” with a wink and a smile, I am able to make my own conclusions. 

Since the Federal Reserve System was implemented in 1913, and we were forced to “trust”, we have been subjected to 2000% inflation.  Since 2000, it has been 34%!

This tells me something very fundamental is broken.

I don’t know about you, but I don’t have a 34% return on my investments, and if I did, I would just break even!

If printing my own money is fraudulent, then why do we allow the Government to do the same?

If an increase in the money supply lowers the value of each unit of currency, why do we allow our money to be depreciated just because someone else wants to print more and give it to their friends?

The printing press though?  It continues to print.  Let’s stop the press and End the Fed.